Economics_Ch06

# What more do we need to think about page 144 to

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Unformatted text preview: we pay for those items, and then we go home and eat the food. What more do we need to think about? Page 144 To understand just how much is involved, suppose you had the job of feeding Cleveland: You need to tell farmers how much corn, wheat, and soybeans to grow. You need to decide what the right price is for Cheerios and ketchup and milk. (How do you figure out these prices?) You need to send so many boxes of orange juice to various grocery stores. (We wonder whether you might send too much orange juice to one grocery store and not enough to another.) To get the right amount of food to your local grocery store, literally hundreds of decisions have to be made along the way. Yet, no giant computer decides how much corn and wheat will be grown and how much orange juice will be sent to the grocery store at the corner of 13th Street and Main. No government bureaucracy in Washington, D.C., decides such things. As far as we know, we cannot point to a single person in the world and say, “She feeds Cleveland.” Well, if no one feeds Cleveland, then how does Cleveland get fed? The answer is “supply and demand” feeds Cleveland. That’s right, supply supply of freeway space (say, four lanes for 150 miles). The demand curve D (11 p.m.) represents the demand for freeway space at 11 p.m. Monday, and the demand curve D (8 a.m.) represents the demand for freeway space at 8 a.m. Monday. You will notice that the demand at 8 a.m. is greater than the demand at 11 p.m. What do most people have to pay to drive on the freeway? For most freeways across 144 Chapter 6 Price: Supply and Demand Together and demand, or what we have come to know as “the market.” If the demand for Cheerios rises, the price rises, which prompts the manufacturer of Cheerios to produce more Cheerios. If the demand for corn rises, the price rises, which prompts corn farmers to plant and harvest more corn. If the demand for fat-free ice cream falls, then fat-free ice cream stays on the grocery shelves longer, and soon the price drops, which signals to...
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